Real estate is one of the most significant purchases you will make, and every contract detail must be carefully considered.
You want to protect your investment, so adding contingency clauses to your contract is vital.
What are contingencies?
A contingency is a condition that must be met for the real estate deal to move forward. The buyer can renegotiate the contract or walk away without penalties if the condition is unmet. Some of the most common contingencies include:
Home Inspection: Before purchasing and moving into your new home, you should know its actual condition. A professional home inspection can reveal problems not easily seen, such as foundation cracks or faulty wiring. Without a home inspection contingency, you could purchase a house that may soon require expensive repairs.
Financing: Unless you’re paying cash, you likely need to take out a mortgage to purchase your home. A financing contingency allows you to back out of the deal if you can’t secure the loan. Even if you’re pre-approved, things could go wrong. For example, rising interest rates can suddenly make mortgage payments unaffordable.
Appraisal: The bank will require a home appraisal before approving your mortgage. If the appraisal is less than the purchase price, the bank won’t cover the difference. Without the appraisal contingency, you would have to make up the shortfall or risk losing your deposit.
Sale of current home: Many buyers need to sell their current home before they can purchase a new one. This contingency clause allows you to delay the closing date or cancel the purchase of the new home if you don’t receive any acceptable offers or the sale of your current home is taking longer than expected.
Title: Your new home should have a clear title with no legal claims, liens or ownership disputes. A title search will uncover any potential problems. A title contingency allows you to resolve the issues before the purchase is finalized.
Contingency clauses may seem like an obstacle to purchasing your dream home. But they are there for your protection. Without them, you could risk losing a significant amount of money.
